Support for Central Bank Digital Currencies (CBDC)! The Reserve Bank of India warns: Stablecoins may threaten financial stability

The Reserve Bank of India warns in its Financial Stability Report that stablecoins could impact monetary sovereignty and policy transmission, advocating for CBDCs like the digital rupee as a credible digital settlement anchor.

The Reserve Bank of India (RBI) releases the Financial Stability Report, reaffirming that stablecoins pose potential macroeconomic risks

According to the RBI’s annual Financial Stability Report published at the end of 2025, the central bank of this South Asian economy demonstrates a very firm warning stance against privately issued stablecoins.

Image source: RBI The Reserve Bank of India’s annual Financial Stability Report published at the end of 2025

The report points out that although stablecoins have gained status in some jurisdictions due to regulatory clarity, their inherent fragility could still pose substantial threats to the overall economy. The RBI emphasizes that stablecoins attempt to serve as “money substitutes,” but fall short in fundamental monetary system requirements such as uniqueness, resilience, and integrity.

In contrast, central bank digital currencies (CBDCs), backed by sovereignty and capable of ensuring the integrity of the monetary system, are viewed by the RBI as a superior monetary architecture for the digital age. The report warns that private digital assets pegged to traditional currencies, especially during market stress, could trigger systemic risks and weaken the transmission of monetary policy.

The RBI has long been skeptical of cryptocurrency volatility, and this report specifically targets stablecoins. The analysis suggests that these privately issued tools lack institutional credibility and regulatory oversight, with frequent dislocation events severely eroding regulatory confidence.

Furthermore, the rapid growth of foreign currency-pegged stablecoins could lead to “money substitution,” challenging a nation’s monetary sovereignty. For stablecoin supporters touting anonymity, low costs, and cross-border payment convenience, the RBI characterizes these as “regulatory risks” rather than public benefits.

Therefore, the RBI strongly advocates for countries to prioritize the development of CBDCs, leveraging sovereign digital infrastructure to build faster, cheaper, and more secure next-generation payment systems, and to serve as the “ultimate settlement asset” and trust anchor within the financial system.

Digital Rupee vs. Stablecoins: Sovereign Backing as the Key to Maintaining Monetary Uniqueness

In the RBI’s policy logic, there are fundamental legal and structural differences between CBDCs and private stablecoins. The report details a comparison of their characteristics:

• The Digital Rupee issued by the RBI has the status of legal tender, enjoys full sovereign backing, and is fully integrated into the central bank’s monetary policy framework;
• Private stablecoins, on the other hand, are issued by private enterprises, are unregulated assets, and their reserve assets vary in quality and transparency.

The RBI believes that CBDCs can retain the advantages of digital technology—such as programmability, real-time settlement, and efficiency—while avoiding the financial stability risks posed by private stablecoins.

For international financial institutions leaning toward stablecoins, the RBI warns that although stablecoins can offer low-cost transfer pathways, they lack the resilience and structural robustness of traditional financial systems.

Expert analysis indicates that the RBI’s stance reflects its core mission to protect monetary sovereignty. Former RBI Deputy Governor R. Gandhi has publicly stated that private stablecoins could fragment the payment system. This concern is especially pronounced in India’s increasingly digital economy.

Despite the strong growth in the global stablecoin market—expanding from $205 billion at the start of 2025 to $307 billion by year-end—highlighting market demand for fully collateralized, compliant stablecoins, the RBI remains committed to “sovereign digital infrastructure first.” This approach aims to ensure that, amid digital transformation waves, the country’s monetary transmission mechanisms are not disrupted by unofficial digital tokens, maintaining long-term economic stability.

India’s phased rollout plan for the Digital Rupee aims for full system integration by 2026

India has adopted a cautious, step-by-step approach to developing and implementing the CBDC, with a clear implementation roadmap. The RBI’s digital rupee testing began as early as November 2022 with a wholesale pilot, followed by retail testing in four cities in December of the same year, and expanded to 15 cities during 2023. The plan is divided into four key phases:

1. Phase 1: Small-scale banking pilots from 2022 to 2023;
2. Phase 2: Expanding user base and use cases in 2024;
3. Phase 3: Gradual public rollout starting in 2025, with enhanced features;
4. Final goal: Achieve full integration of the digital rupee with existing financial infrastructure after 2026.

This incremental deployment allows for detailed risk assessment and technical stress testing at each stage.

Currently, the digital rupee has been tested across multiple sectors including wholesale transactions, retail payments, and cross-border settlements. This “retail and wholesale dual-track” approach enables India to address different levels of financial needs simultaneously.

The RBI believes that successful implementation of the digital rupee can not only reduce dependence on cash but also promote financial inclusion, bringing unbanked populations into the financial system.

Additionally, CBDC applications are expected to significantly lower transaction costs for individuals and businesses, improve monetary policy transmission efficiency, and reduce risks in interbank settlements. Despite challenges in infrastructure and digital literacy, the RBI has repeatedly emphasized that security and stability are always prioritized over deployment speed.

Global CBDC Adoption Varies, India Faces Low Adoption and Policy Incentive Challenges

Although the RBI has been proactive in policy development and technological research, actual market adoption remains relatively slow.

Data shows that as of late June 2024, retail transactions of the digital rupee totaled only 1 million. This milestone was achieved after local banks incentivized usage, even paying some employees’ salaries in digital rupees. Globally, CBDC development faces similar challenges.

According to data from the Atlantic Council, only three countries (Nigeria, The Bahamas, and Jamaica) have officially launched active CBDC tokens, with about 49 other countries in pilot stages. This stagnation contrasts sharply with the booming stablecoin market, indicating that users may prefer existing digital tools for actual payment experiences and convenience.

Image source: Atlantic Council Currently, only three countries (Nigeria, The Bahamas, and Jamaica) have officially launched active CBDC tokens

The RBI has responded with active regulation. While the US and Europe are establishing dedicated legal frameworks to support stablecoin growth, the Indian government’s 2025–2026 Economic Survey mentions considering stablecoin regulation, but the RBI remains cautious.

The RBI emphasizes that CBDCs possess the “trust anchor” feature, which private stablecoins cannot match. To counter stablecoin competition, the RBI plans to further enhance the convenience and functionality of the digital rupee, making it not only as efficient and programmable as stablecoins but also secure with central bank funds.

As the goal of full integration approaches in 2026, how India overcomes digital divides and boosts public adoption will be a key indicator for whether sovereign digital currencies can surpass private tokens.